Ecuador, which earlier this month completed the world’s largest so-called debt-for-nature deal, is considering a new transaction of this kind in less than two years, Finance Minister Pablo Arosemena said.
(Bloomberg) — Ecuador, which earlier this month completed the world’s largest so-called debt-for-nature deal, is considering a new transaction of this kind in less than two years, Finance Minister Pablo Arosemena said.
“We have several innovative and creative projects to do several types of swaps that allow us to reduce debt on one hand and monetize Ecuador’s great biodiversity,” Arosemena said in an interview Tuesday. “We think that the learning curve will allow us to put it out in less time, so it won’t take two years.”
Ecuador swapped $1.6 billion of nominal value denominated bonds for a new $656 million loan. As a result, the country will realize more than $1.13 billion in savings through reduced debt servicing costs, Credit Suisse Group AG, which arranged and structured the transaction, said in a May 9 statement. The debt conversion will also generate about $323 million in funding for protection efforts for the Galapagos Islands over the next 18 years — in part via a commitment from Ecuador to make annual contributions, according to the Swiss bank.
“We did it this time with this marine reserve, but there are Amazon corridors,” among other environmental assets, Arosemena said. “Ecuador can and should do more of these kinds of deals.”
Following the swap, the country has a combined $16 billion in bonds coming due in 2030, 2035 and 2040. Its natural assets include rain forests, coastal shores and Andean habitats, Foreign Minister Gustavo Manrique said during a press conference last week.
The Galapagos deal benefits from a $656 million political risk insurance from the US International Development Finance Corp. and an $85 million guarantee from the Inter-American Development Bank, Credit Suisse said. A group of 11 private insurers is providing more than 50% reinsurance to facilitate the project, the Swiss bank added. The bond, which has a 5.645% coupon, received the third highest investment grade rating from Moody’s Investors Service, 16 notches above Ecuador’s foreign-issuer rating.
While Ecuador’s new loan carries an interest rate of about 6.975%, the all-in cost — which includes fees as well as payments for marine conservation — rises to 11.04%, a representative for the government said. For reference, Ecuador’s $2.98 billion of 1.5% bonds due 2040 are trading at a yield of around 18%, according to data compiled by Bloomberg.
Arosemena spoke as impeachment proceedings against President Guillermo Lasso began in Ecuador’s congress. The minister said he was confident that the government would survive the near-term challenge. The political instability allowed the buyback to proceed at lower prices, Arosemena said.
Credit Suisse declined to comment. The US International Development Finance Corp. and the Inter-American Development Bank didn’t immediately respond to requests for comment.
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